Corporate Foresight in Small and Medium-Sized Enterprises

WWW.EFMN.INFO The European Foresight Monitoring Network

Foresight Brief No. 101

Authors: Kai Jannek [email protected] Klaus Burmeister [email protected] Sponsors: Supported by the Federal Ministry of Education and Research (BMBF) within the framework of Innovation and Technology Analyses (ITA), Z_punkt GmbH Type: National expert survey Organizer: Z_punkt GmbH The Foresight Company, Klaus Burmeister, [email protected] Duration: 2007-2008 Budget: NA Time Horizon: NA Date of Brief: June 2007

Purpose

The objective of this research project is to identify the foresight requirements of German small and medium-sized enterprises (SMEs), their corporate foresight activities, to the extent that they exist, and limiting factors for systematic foresight approaches. To this end, an expert survey was conducted with SME decision-makers. Its purpose is to make executives more aware of the indispensability and the potential foresight offers in changing markets and business environments, and supporting them in their foresight approaches.

concerning foresight needs, and a three-point Likert scale SMEs – A White Spot (1=regularly, 2=sometimes, 3=never) for most questions about in Corporate Foresight Research foresight activities. Closed questions are always followed by open questions to elicit additional information. So far, empirical corporate foresight research has focused solely on large-scale corporations in the respective European Survey Participants and countries, and in Europe as a whole. The foresight needs and activities of SMEs, in contrast, have stayed below the radar, their Market Environments even though the value of SMEs’ contribution to employment, value creation, and innovation is well recognized. 1,000 German companies were invited to take part in the sur- This research project aims to analyse the market situation and vey; 115 of which responded (11.5%). Based on annual sales business environment of SMEs and, in doing so, assess their volume, the participants can be classified as foresight needs. Furthermore, there is the question whether • traditional SMEs (< 50 mio. €: 38%), and in what way SMEs explore possible future market and environmental developments and utilize the resulting knowledge. • upscale SMEs (50 mio. – 1,000 mio. €: 49%), and Z_punkt GmbH prepared and mailed a questionnaire (in digi- • corporate-like SMEs (> 1,000 mio. €: 13%). tal and paper form) to SME executives. To permit comparabil- 17% of participants have fewer than 100 employees, 29% ity, the survey gives closed questions using a five-point Likert have between 100 and 250, 20% have between 250 and 1,000 scale (1=strongly agree, 5=strongly disagree) for most queries employees, and 34% employ more than 1,000 people.

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Corporate Foresight in Small and Medium-Sized Enterprises: Foresight Brief No. 101

Market Environments This would make foresight more useful to SMEs’ future plans The participants come from a wide range of industries, most than short-sighted market research. The monitoring focus would have to be on the future development of high-impact prominently machine building (10%), construction (9%), automotive and logistics (9%), marketing and media (9%), market determinants, i.e. business clients (2.1) and competi- food (8%), retail (8%), IT and software (8%). tors (2.3). SME executives consider consumers, new market entrants, suppliers and substitutes (2.7, 2.9, 3.0, 3.2, respec- Asked for their main regional markets, almost all participating tively) to be of lesser importance. SMEs (95%) operate in Western Europe. Some also cover North America (15%) and Eastern Europe (13%). China and Market determinants with a high impact on Japan, on the other hand, currently only play a very minor role market changes (3% and 2%, respectively). strongly agree agree neither agree nor disagree disagree strongly disagree Substitutes SMEs’ Foresight Needs New market entrants Competitors It is assumed that the foresight needs of an SME can be de- rived from several indicators. Accordingly, survey participants Suppliers were asked to assess their market and business environment Business clients dynamics, and their companies’ development plans. Consumers

0% 20% 40% 60% 80% 100% Regional Expansion: Share of times mentioned Source: Z_punkt Eastern Europe Major Point of Interest The more a company is willing to change, the more it depends on foresight knowledge to provide security for investment Changing Business Environments decisions. The pressure to act is mainly the result of intense It is assumed that market dynamics are, to a certain degree, the competition in terms of price (1.8 on average on the five-point product of environmental changes. Hence, the latter have to be Likert scale) and quality (2.2), but also innovation and time closely examined to project future market developments as far (2.6 and 2.7, respectively). Many SMEs seek to escape height- as possible. SME executives also see an increase in the dy- ened competition by focusing on regional expansion and namics of their business environments. These have changed product innovation. strongly over the last three to five years (2.2) and further shifts 47% of all survey participants are mainly interested in expand- are expected for the next three to five years (2.0). Here, tech- ing their business to Eastern Europe. China (32%), Western nology, economics (2.3 each) and politics (2.6) are key envi- Europe (25%), North America (23%) and Japan (15%) are ronmental sectors, while society and ecology (2.9 and 3.2) are also future target markets. not perceived to be crucial.

Incremental Improvements Dominate STEEP sectors with a high impact on market and business environment changes With regard to innovation activities, incremental improve- strongly agree agree neither agree nor disagree disagree strongly disagree ments dominate (87%), but fully new products and services Politics have also been developed in recent years (64%). Furthermore, new production processes (46%) and new business models Ecology (35%) have been pursued. Only 2% of the participating SMEs Economics have not innovated at all. Technology

Short Lead Times Society

However, development lead times for new products remain 0% 20% 40% 60% 80% 100% short, with 28% of all SMEs surveyed having a short (0-1 year), Share of times mentioned Source: Z_punkt 44% a medium (1-3 years), and 10% a long time horizon (over 3 years). 18% have no standardized development times. There- fore, market research might suffice to satisfy contextual knowl- Foresight Needed in Dynamic Markets and Environments edge needs given that the relevant markets and business envi- SME executives prepare for regional expansion and innova- ronments remain relatively stable within planning cycles. tion activities. Their planning cycles are rather short. How- ever, since SMEs operate in highly competitive and dynamic Market Perception: Increasingly Dynamic markets, it is assumed that their foresight requirements are However, SME executives perceive their markets as increas- substantial. From their point of view, the most important fields ingly dynamic. They consider their markets to have changed for environmental scanning and monitoring are technology, strongly in the last three to five years (2.0) and further signifi- economics and politics. Within their relevant markets, SMEs cant changes are expected for the next three to five years (1.9). have to focus primarily on exploring possible actors’ strate-

Page 2 of 4 Corporate Foresight in Small and Medium-Sized Enterprises: Foresight Brief No. 101 gies. However, there is reason to challenge the SMEs’ ratings In contrast, external scientists (regularly: 8%, sometimes: to a certain extent. Given that many SMEs have business cli- 40%) and specialized departments such as R&D (regularly: ents, but that end consumers complete every value chain, con- 39%, sometimes: 16%) or strategy (regularly: 40%, some- sumers as an important market determinant and society as an times: 20%) are rarely involved. The latter fact may be ex- essential environment determinant may be underrated. plained by the size of the companies surveyed.

SMEs’ Foresight Activities Foresight participants in SMEs regularly sometimes never Cooperation partners In part, SMEs respond to their foresight demands with more or Competitors less pronounced foresight activities. Suppliers Clients Expert groups Foresight Systematics and Methods Applied Business Scientists Consultants 85% of the SMEs regularly monitor developments in their Task force markets and industries (sometimes: 14%, never: 1%). Fur- Individual employees Top Management thermore, 29% frequently scan markets and industries they are Strategy not competing in for new developments (sometimes: 61%, Sales Marketing never: 10%). 74% of the SMEs surveyed regularly monitor R&D issues, trends and new technologies considered relevant for 0% 20% 40% 60% 80% 100% their business (sometimes: 26%, never: 0%); additionally, Share of times mentioned Source: Z_punkt 30% often scan their environments for new issues, trends and technologies whose relevance cannot yet be assessed (some- Foresight is mainly used for strategic planning (1.7 on the times: 60%, never: 10%). five-point Likert scale mentioned above) and to identify new Various foresight methods for scanning and monitoring, innovation fields (2.0). Foresight information is also consid- analysis and idea transfer are used. Most frequently applied are ered useful for product improvements (2.2) and new business models (2.3), investment decisions, risk management (2.4 • brainstorming (regularly: 38%, sometimes: 51%), each) and early warning (2.6). • desk research, e.g. internet and media analysis, (regularly: 40%, sometimes: 47%), and Foresight Impediments • expert interviews (regularly: 32%, sometimes: 54%). In general, SME executives are aware of their companies’ These methods are not only used most often but also consid- foresight requirements. At the very least, they disagree (4.2) ered the most important ones. In contrast, more complex fore- with the statement that there was no need for their company to sight methods, for instance expert Delphi surveys (regularly: monitor market and business environment changes. However, 3%, sometimes: 19%) and the scenario-method (regularly: budget and manpower capacity constraints (3.2 and 3.3, re- 10%, sometimes: 43%) are less relevant and in some cases spectively) place limits on systematic foresight approaches. even unknown. Furthermore, problems may occur when foresight knowledge has to be transformed into practical knowledge and ideas for Foresight Participants and Foresight Purpose new products and strategies (3.4). In the main, SME executives do not consider a lack of know-how, methodological Foresight processes in SMEs are carried out by top management competence, and cooperation to be impediments to foresight (regularly: 77%, sometimes: 23%) and individual employees (3.6 each). (regularly: 35%, sometimes: 61%). In many cases, the sales department (regularly: 54%, sometimes: 39%) and individual Basic Corporate Foresight in SMEs clients (regularly: 36%, sometimes: 53%) are also involved. Corporate foresight understood as a future intelligence gather- ing process is quite systematically conducted in SMEs. While Foresight methods applied by SMEs the methods may be rather simple they are capably applied.

regularly sometimes never don't know (the method) Top management and individual employees are responsible for

Early warning system foresight processes, but sales departments and clients are also Issue Management involved. This reflects the fact that the aim of foresight is Brainstorming methods Simulations mainly to support strategic planning and product innovation. Roadmapping However, this transfer as well as budget and manpower con- Patent/ technology analysis straints are also bottlenecks for the implementation of a more Internet/ media analysis Environment analysis complex foresight approach. Trend analysis Scenario method Expert Delphis Expert interviews

0% 20% 40% 60% 80% 100%

Share of times mentioned Source: Z_punkt

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drawback. Executives might be well advised to shift foresight Rethinking SMEs’ processes to a task force, strategy unit or to consultants. Foresight Needs and Activities Greater Results Orientation Firstly, the research project has revealed that SMEs have sub- However, the foresight restrictions outlined above may limit stantial foresight needs. This is not so much a result of long- the usefulness of these recommendations. Therefore, the fore- term planning cycles, but due to high market and business sight community would do well to realize the specific re- environment dynamics and actors’ shifting strategies. Sec- quirements of SMEs and the constraints they are confronted ondly, the survey has shown that SMEs use basic but system- with. The question is whether foresight tools and processes atic foresight activities to support strategic planning and inno- can be downsized or adapted to the needs of SMEs. Foresight vation management. These foresight requirements and ap- approaches need to be simplified and become more results- proaches may have been underestimated so far in the business oriented. Efforts in this direction might also be welcomed by world, in the foresight community and among policy-makers. other public and corporate foresight users or clients. SMEs could be seen as test cases for a new generation of more More Appropriate Techniques Needed pragmatic foresight concepts to emerge in the long run. SME executives have to broaden their foresight horizons and In the short run, cooperation and political support can be used draw on more elaborate foresight methods better suited to their to improve SMEs’ foresight activities. SMEs do not need tai- needs. For the highly dynamic markets and business environ- lor-made future environmental scenarios. External sources can ments they operate in, trend analysis, roadmapping and sce- provide regional scenarios with a time horizon of five to ten narios to explore alternative futures are more appropriate. Ad- years. Companies would then adapt these to their specific in- ditionally, simulation techniques may be useful in SME busi- dustries. SMEs could also cooperate in foresight networks to ness contexts strongly driven by third parties (e.g. clients, generate economies of scale. External experts and scientists competitors, politics). Foresight training courses in these more can be temporarily integrated as desired. Finally, political de- elaborate methods are also essential. cision-makers have to encourage these initiatives. In addition, Corporate Foresight is one option to extend the scope of SMEs. Even though most SMEs are B2B suppliers, Outlook: Identify Best Practice Models of SME Foresights end consumers and social changes may have a considerable The survey results outlined are only a first step in the exploration impact on their business. SME managers should therefore re- of SMEs’ foresight needs and activities. For a deeper understand- valuate the importance of this sphere. ing, we will, in a second stage, analyse the survey results with regard to segments of comparable foresight needs. Thirdly, within Move Foresight to Strategy Unit each segment, we want to identify SMEs with best practice Cor- The fact that in most companies, responsibility for foresight porate Foresight activities. These foresight approaches will be activities rests with SME top managers is remarkable. Gener- examined in detailed case studies to serve as role models for other ally, this commitment is identified as a critical success factor SMEs with similar foresight needs (from the same segment). for corporate foresight. However, limited time resources may make the top managements’ high level of involvement a

published paper 2006. Results to be published soon, see Sources and References http://www.strategicforesight.ch Burmeister, Klaus; Neef, Andreas; Beyers, Bert: Corporate Neef, Andreas; Daheim, Cornelia: Corporate Foresight – The Foresight. Unternehmen gestalten Zukunft. Hamburg 2004 European Experience. In: Wagner, Cynthia G. (ed.): Fore- Duin, Patrick A. van der: Qualitative Futures Research for sight, Innovation, and Strategy – Toward a Wiser Future. Innovation. Delft 2006 World Future Society 2005, p. 223-241 Müller, Adrian: Strategic Foresight in Companies. An interna- Project website (German): http://www.openforesight.de tional survey on trends and futures research processes. Un-

About the EFMN: Policy Professionals dealing with RTD, Innovation and Economic Development increasingly recognize a need to base decisions on broadly based participative processes of deliberation and consultation with stakeholders. One of the most important tools they apply is FORESIGHT. The EFMN or European Fore- sight Monitoring Network supports policy professionals by monitoring and analyzing Foresight activities in the European Union, its neighbours and the world. The EFMN helps those involved in policy development to stay up to date on current practice in Foresight. It helps them to tap into a network of know-how and experience on issues related to the day to day design, management and execution of Foresight and Foresight related processes.

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